Tuesday, May 20, 2008

The illusion of market ratings

*Ratings of Bear Stearns were listed as investment grade on the day the firm collapsed.

*Asset-backed securities loaded with subprime loans were uniformly given triple-A ratings up until late last summer, despite the fact that the housing market had already started turning south months before. Then last fall, the credit rating agencies knocked down within weeks to junk status almost half of the subprime mortgage bonds issued in 2006 and the first half of 2007.

*Embattled bond insurer MBIA still has its triple-A rating, despite its record losses and writedowns that has its thin wedge of a capital cushion teetering over the precipice.

*Bond insurer Ambac also somehow has held onto its triple-A rating by its fingernails, despite record losses. It continues to insure the debt of the state of California, the world�s sixth largest economy. Both MBIA and Ambac have equity capital of $31bn supporting a $1.4t book of business. Only 16 publicly traded companies can boast having a triple-A rating, something IBM doesn�t have.

*Enron was rated investment grade by the credit ratings agencies four days before it went bankrupt; WorldCom and Global Crossing kept their top grades within months of going belly-up.

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"We have before us the opportunity to forge for ourselves and for future generations a new world order, a world where the rule of law, not the rule of the jungle, governs the conduct of nations. When we are successful, and we will be, we have a real chance at this new world order, an order in which a credible United Nations can use its peacekeeping role to fulfill the promise and vision of the U.N.'s founders." - President George Bush 1991

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“We shall have World Government, whether or not we like it. The only question is whether World Government will be achieved by conquest or consent.” – James Paul Warburg, whose family co-founded the Federal Reserve - while speaking before the United States Senate, February 17, 1950

"For two centuries we've done the hard work of freedom. And tonight we lead the world in facing down a threat to decency and humanity. What is at stake is more than one small country, it is a big idea - a new world order, where diverse nations are drawn together in common cause to achieve the universal aspirations of mankind: peace and security, freedom, and the rule of law. Such is a world worthy of our struggle, and worthy of our children's future." - PresidentGeorgeBushState of the Union Address 1991

"A really efficient totalitarian state would be one in which the all-powerful executive of political bosses and their army of managers control a population of slaves who do not have to be coerced, because they love their servitude. To make them love it is the task assigned, in present-day totalitarian states, to ministries of propaganda, newspaper editors and schoolteachers.... The greatest triumphs of propaganda have been accomplished, not by doing something, but by refraining from doing. Great is truth, but still greater, from a practical point of view, is silence about truth." - Aldous Huxley Brave New World foreword to 1946 edition